A Week in Real Estate: 12 Aug 2017

By August 12, 2017News

Investment Loans Slowing

Home lending is still growing despite slower growth in investment loans. Some reports speculate there has been an increase in “upgraders” who are purchasing bigger homes. Other reports suggest property investors are saying they intend to live in their newly purchased homes to secure a lower interest rate.

It is plausible there has been an increase in upgraders, but it would not be surprising if borrowers are reclassifying themselves as owner-occupiers, given the difference in interest rates between owner-occupiers and investors, said UBS bank analyst Jon Mott.

“This is consistent with our report which found 28% of mortgagors stated their application was not factually accurate, or 32% (in the broker channel),” Mott said. Industry data shows that investor property lending has slowed, down from a peak of 0.76% in December to 0.41% in June, according to UBS.

Construction Strongest Since 2005

Construction has hit its strongest point since 2005 as increased stamp duty concessions for first homebuyers take hold.

Despite talk of home building slowing in some parts of the country including Queensland, the latest Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index jumped 4.5 points to 60.5 points in July.

That was “the strongest pace of overall industry growth since the survey’s inception in September 2005,” the Australian PCI report said.

House building and commercial construction were the major drivers, it said.
“House builders reported a high degree of support from ongoing projects while some businesses indicated that stamp duty reductions (which came into effect in NSW and Victoria from 1 July) had led to an increase in first homebuyer activity.”

Quote of the week

“While it is likely to take some time for the banks’ recent mortgage repricing to take effect, we believe that unless the housing market and growth in household debt slows considerably, APRA is likely to further tighten macroprudential measures in the second half of 2017.”
UBS bank analyst Jon Mott

Apartment Development Pipeline Hits $5.5b

Australia’s pipeline of apartment developments has hit $5.5 billion after a rebound in July, especially on the East Coast.

The CoreLogic July Construction report found “a 54% rebound off of the previous month” in the apartment and unit pipeline, led by project applications along the central coast of New South Wales and the coast of South East Queensland as well as capital cities.

The data, compiled by CoreLogic research analyst Eliza Owen, estimated the national construction pipeline in July at $21.7b off 2,087 projects, “well above the 12 month average of $14.6b per month”.

A $7b airport proposal near Koo Wee Rup, southeast of Melbourne, made up a big chunk of the pipeline spike, the report said. That saw Melbourne top the pipeline values chain with $12.4b in construction proposals in July, or 57% of the national data.

Business Confidence Best Since 2008

The latest National Australia Bank survey says business conditions are the best since early 2008.

And after three years of steady improvement in profits, sales and employment, companies are increasingly confident about the outlook.

NAB’s July survey shows the number of firms saying conditions overall are improving outnumbers those saying they are becoming more difficult by 15 percentage points, three times the long-term average margin.

The net margin reporting improved confidence about the outlook jumped from eight to 12 percentage points in July, which NAB says is double the long-run average. The strongest sectors are finance and personal services, where the net positive margin is above 15 percentage points. Wholesale, transport and utilities are close to that level.

Australia’s First ‘Build to Rent’ Fund

Mirvac Group intends to launch Australia’s first major build-to-rent apartment vehicle using institutional investors. Its aim is to ease stress on the housing market.

The scheme would see Mirvac build and hold units in capital cities with the backing of major superannuation funds that reap returns from rentals paid by people living in the dedicated blocks operated by the company.

Returns on investing in apartments are becoming more attractive to superannuation funds as top buildings and malls are now producing lower returns, with major assets trading on returns of less than 5% this year.

The build-to-rent model is a hot topic in the industry but needs more collaboration with government, says Kylie Rampa, Lendlease chief executive.

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